Citigroup Call Options Triple With Pandit's Bullish Estimates At 2010 Citi Financial Conference, $C

This week saw big call option activity in Citigroup ($C) at the $4 strike. A few days ago CEO Vikram Pandit testified before the TARP Oversight Committee and said commercial real estate was not an issue on their books and they wouldn't come back for aid [Full video here].  After Citigroup paid back TARP funds, US taxpayers still own 27% of the common stock at $3.25.  Today Vikram Pandit made a presentation at the Citi 2010 Financial Services Conference.  From the full PDF file here are a few bullish estimates or goals he made [Source: Citigroup].
  • Citicorps "Global Revenue Pool" could grow 21.8% to $3.9 Trillion with emerging markets representing 55% revenue growth [Page 12].
  • Goal to increase managed assets 5% annually (compound annual growth rate) from $1.38 Trillion in 2009.
  • Goal to see 1.25%-1.50% Return on Assets from 1.15% in 2009. 

Citigroup Financial Services Conference Vikram Pandit


I will remind you that Citi saw $7.1 Billion in net credit losses in Q4-2009, although 10% lower than the $7.96 Billion reported in Q3-2009.  Here's more info on Citigroup Q4 net income with net credit loses in various segments.  Data was cut from the FY 2009/Q4 2009 press release.

Credit
"Citigroup fourth quarter credit costs of $8.2 billion included net credit losses of $7.1 billion, a $0.7 billion net loan loss reserve build and a $0.3 billion provision for policyholder benefits and claims. Net credit losses were down 10% from the prior quarter. Total credit costs declined 10% sequentially, to the lowest level since the second quarter of 2008."


"Citicorp fourth quarter credit costs were $1.6 billion, consisting essentially of net credit losses. Citicorp managed net credit losses were $3.3 billion, down 8% sequentially."

"Citi Holdings fourth quarter credit costs were $6.6 billion, and included $5.6 billion of net credit losses, a $0.7 billion reserve build and a $0.3 billion provision for policyholder benefits and claims. Managed net credit losses were $6.7 billion, down 9% from the prior quarter."

Net Income
"Citigroup’s net loss was $7.6 billion in the fourth quarter versus $0.1 billion of net income in the third quarter. Excluding the impact of the TARP repayment and exiting the loss-sharing agreement in the fourth quarter and the gain on debt extinguishment associated with the exchange offers in the third quarter, net income was lower by $0.6 billion sequentially. The impact of the TARP repayment, exiting of the loss-sharing agreement and the gain on debt extinguishment were recorded in the Corporate/Other segment."

I gathered these articles when I saw all the call volume and perhaps they were related.
  1. Pandit estimates Citicorp could earn 1.25% of assets, assets will increase 5%/year which could earn $20 billion by 2012 (read FT.com article).
  2. Apollo Management agreed to buy Citigroup's real estate investment unit (read Bloomberg article).
  3. Citigroup sold $2 billion of 30-year trust preferred securities with initial 8.5 percent yield (read at BusinessWeek).

Now look at the massive call volume.  If you were riding the size in the March $4 call from Tuesday you would've tripled your money in 3 days.  I'm not saying that was the DNA of the big volume though.

On Tuesday: (CrimsonMind)
10 Mar 4.00 Call at ask: 0.05 (314,016 moved with 913,688 open)
10 Apr 4.00 Call at ask: 0.15 (295,212 moved with 154,599 open)
10 Jun 4.00 Call at ask: 0.25 (125,044 moved with 771,395 open)
11 Jan 4.00 Call at ask: 0.53 (110,868 moved with 417,933 open)

Wednesday, 3/10/2010
10 Mar 4.00 Call at close 0.09 (303k moved with 902k open) +80% (from Tue Ask)
10 Apr 4.00 Call at close 0.21 (186k moved with 334k open) +40%
10 Jun 4.00 Call at close 0.34 (245k moved with 809k open) +36%

Wednesday, March Citigroup ($C) $4 Call (Yahoo Finance)

Thursday, 3/11/2010
10 Mar 4.00 Call at close 0.22 (345k moved with 814k open) +340%! (from Tue Ask)
10 Apr 4.00 Call at close 0.34 (146k moved with 405k open) +126%
10 Jun 4.00 Call at close 0.47 (159k moved with 862k open) +88%

Thursday, March Citigroup ($C) $4 Call (Yahoo Finance)

The stock had a decent move as well after it broke through the downtrend and based out just above the 50 day moving average before gaining 20%.  The MACD momentum indicator crossed above the zero line in the process.  It moved about 20% in 4 days.

Citigroup ($C) Courtesy of Stockcharts.com

Citi could see some resistance soon on the chart but the big option volume looking out was interesting. I do not know the nature of the volume though. Also, a double dip recession could derail some of Pandit's plans.
The US faces challenges in the second half, especially as fiscal stimulus measures fade, and "appears far too close to the tipping point of a double-dip recession," he said. [Roubini on CNBC]

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